A small policy change, adopted with no discussion Wednesday by the city and county economic development agency, could translate into millions of dollars spent with minority and women-owned businesses by companies that receive tax breaks to relocate or expand here.
While the change was welcomed by black business owners, the agency’s CEO acknowledged that it comes too late for people of color and women to benefit from the boom in industrial site development over the last 15 years.
The change will likely draw the ire of some Republican Shelby County commissioners, such as Heidi Shafer, who threatened to “claw back” the agency’s authority when the proposed change was added — and then withdrawn — from the EDGE (Economic and Development Growth Engine for Memphis and Shelby County) agenda last month.
And it may not translate into a boost for black-owned businesses specifically, which historically have not received a proportionate share of the EDGE tax break business.
Black businesses earn less than 1 percent of business receipts citywide and a 2016 disparity study found that 88 percent of Shelby County contracts — or $168 million – go to businesses owned by white men, who make up about 20 percent of the county’s population.
African-Americans make up 54 percent of the county’s population, but black businesses received just under 6 percent of county contracts ($11 million). Companies owned by white women received just over 5 percent ($9.8 million).
The tweak by EDGE changed the local business participation policy, replacing the reference to locally owned small businesses (LOSBs) with minority and women business enterprises (MWBEs).
The city of Memphis has long certified MWBEs. But until this year, Shelby County did not certify MWBEs and instead maintained a list of local small businesses, which included minority and women-owned businesses and businesses owned by white men.
The county now has an MWBE list, which prompted the EDGE policy change.
Before Wednesday, companies that received tax breaks through EDGE could consult the city’s MWBE list and the county’s LOSB list to meet EDGE’s local business participation requirement.
The requirement mandated that recipients of PILOTs (payment in lieu of taxes) or TIFs (tax increment financing) spend 25 percent of their construction budget and 15 percent of the tax savings with businesses on the county’s or city’s list.
No more, said EDGE CEO Reid Dulberger Wednesday.
“If you are a PILOT or a TIF (tax increment financing) recipient and you have a requirement to spend a certain amount of money with our local business participation program, the money you spend with white, male-owned businesses no longer could count, “Dulberger explained.
“In the past, if that white, male-owned business was an LOSB on the county list, you could count it, but that’s no longer the case from this moment on.”
The unanimous vote was taken so fast that the board chair failed to get a first or second on the motion. Once the procedural error was pointed out, EDGE board member Natasha Donerson, an executive at Regional One Health, offered the first. Mark Halperin, chief executive officer of Boyle Investment Company, seconded.
It was Donerson who drew Commissioner Shafer’s ire at a May commission meeting when Donerson appeared for what would typically be a routine reappointment to the EDGE board. The policy that passed Wednesday was on the EDGE board agenda last month, but was withdrawn.
“So I just got a text that said that EDGE is voting today to remove locally owned small business designation from the diversity program,” said Shafer to Donerson. “It leaves only MWBE designation for PILOT recipients to utilize.”
Donerson, who is black, attempted to clarify, but Shafer, who is white, cut her off.
“I’m going to be watching you y’all like a hawk, OK?” Shafer said. “What I do not want to happen is that local businesses are not being given preferential treatment, that they’re being cut out because they’ve gotten too much business or because they didn’t fit criteria,” Shafer said.
“I just want to remind you all that you exist because we created you and you have borrowed authority and borrowed power that we can claw back at any time, OK?” Shafer scolded Donerson.
“OK,” Donerson replied.
“And I think y’all are getting a little bit far out beyond the pale and I’m going to be watching this extremely closely.”
The resolution approving Donerson’s reappointment passed, 3–0. Shafer and Commissioner Mark Billingsley abstained.
Despite Donerson running into what Dulberger said was a “buzz saw” at the county commission, he said he didn’t get much opposition to the local business participation policy. There was, however, some confusion about what EDGE was doing versus the changes that the county is making to its LOSB and MWBE policies. “No one really pushed back, the logic was really self-evident to everyone,” he said.
And even though Shafer hinted that the EDGE board’s role could be curtailed if local businesses don’t receive priority, Dulberger noted that EDGE was established as an independent agency by the county commission and city council.
“This board has broad authority, “Dulberger said. “The county and the city approved that authority with the original charter,” he said. “I think there’s some confusion about that.”
Dulberger lamented that the policy change didn’t come years ago, before most of the large industrial sites were developed.
“Our issue today is we don’t have good sites,” he said. “The easy industrial sites are largely gone.” He hopes that the residential PILOTs, which will be largely construction projects, will be a boost and he suggested that big projects are on the horizon. “July should be a good month for EDGE.”
The attention to the strength of black businesses has only increased as the 50th anniversary of Dr. Martin Luther King Jr.’s assassination nears. It was an issue King stressed in what would be his last speech, delivered at Mason Temple April 3, 1968.
“We’ve got to strengthen black institutions,” he said. “I call upon you to take your money out of the banks downtown and deposit your money in Tri-State Bank.”
On May 9, Rev. Jesse Jackson, who was at the Lorraine Motel with King the night he was assassinated, appeared before the Memphis City Council to warn that if the city didn’t do at least 50 percent of their spending with black-owned businesses, he would be back to lead a march.
On Wednesday, the Greater Memphis Chamber said that it was not involved in EDGE’s decision to amend its policy.
“However,” the chamber said in a statement to MLK50, “growing minority receipts is our highest priority in breaking the cycle of poverty.”
“We are promoting this growth through the following initiatives which were recommended by the Supplier-Diversity Collaborative: Memphis Ascend Program (year-long program where small businesses receive invaluable business development assistance at no cost); Contract Goal of 300 new MWBE/300 new LOSB contracts (effort led by Chairman’s Circle to directly impact MWBE/LOSB contracting); ISO Certification of MWBE companies (companies are ISO certified at no cost to companies completing the program); Business Opportunities Portal (a one-stop marketplace for opportunities to bid on business) and collaboration with City of Memphis and Shelby County governments to tear down the barriers in the certification process.”
In May on WKNO’s “Behind The Headlines,” the chamber’s board chairwoman Carolyn Hardy complained that EDGE’s MWBE program doesn’t work because it lumps all people of color and white women together, which can mask the fact that black businesses are being shut out of projects.
“What we learned on a couple of our projects is they met the goal … but no blacks participated on the project,” said Carolyn Hardy on the program, as reported by the Memphis Daily News’ Bill Dries.
A recent example: IKEA, which spent $64 million to build a store near the Wolfchase Mall, landed more than $10 million in tax breaks from EDGE, but no black businesses received any of the construction contracts. Instead the home furnishing company, which opened here in December, met the local business participation requirement by hiring a single small white male-owned firm.
When EDGE reports its MWBE data, it does not disaggregate the data, which means that MWBE spending may be up, but it may not be up with African-Americans, which own more businesses in the county than white residents, although black businesses tend to be smaller and have fewer employees.
“So in order for that PILOT program to be successful, they have to separate women from blacks,” Hardy said. “Combining them does not work because that’s another way to game the system — to exclude us totally.”
Where do we go from here?
Read about why black wealth matters in The Memphis Flyer.
Meet the members of the EDGE board and learn more about the tax incentives EDGE offers, including PILOTs, TIFs and more.
Learn about the Greater Memphis Chamber’s well-intentioned but flawed plan to boost spending with black businesses.
This report is brought to you by MLK50: Justice Through Journalism, a nonprofit reporting project on economic justice in Memphis. Support independent journalism by making a tax-deductible donation today.